Microsoft (MSFT) Stock: Why Analysts Are Getting Even More Bullish on the Tech Giant
TLDR:
Citi raised Microsoft’s price target from $480 to $540, maintaining a Buy rating
Microsoft announced a 3% workforce reduction expected to save over $1 billion
Microsoft and OpenAI are resetting their partnership, potentially reducing Microsoft’s equity stake for extended technology access
Microsoft stock has gained 18.9% in the past month despite broader economic challenges
The company expects continued growth in Azure cloud services and maintains strong capital expenditure plans
Microsoft’s stock received a boost this week as Citi analysts raised their price target to $540 from $480 while maintaining a Buy rating on the tech giant’s shares. This adjustment follows Microsoft’s recent workforce reduction announcement and strong fiscal third-quarter 2025 results.
The company, currently valued at $3.37 trillion, has seen 24 analysts revise their earnings estimates upward for the upcoming period. Price targets now range from $429.86 to $650, reflecting widespread optimism about Microsoft’s prospects.
Microsoft recently announced a 3% reduction in its workforce. This move is expected to generate over $1 billion in net savings into fiscal year 2026, helping to offset increasing costs from depreciation and capital expenditures.
The tech giant’s management has expressed confidence in the current demand environment and investment cycle. They’ve confirmed expectations of capital expenditure growth for both the fourth fiscal quarter of 2025 and the full fiscal year 2026.
Citi’s optimistic outlook is reflected in their raised growth projections for Azure, Microsoft’s cloud computing service. They now anticipate 35% year-over-year constant currency growth in the fourth fiscal quarter and expect to maintain growth rates in the 30s percentage range for fiscal year 2026.
Partnership Evolution
In other significant news, Microsoft and OpenAI are working to reset their partnership. This development represents the latest chapter in a relationship that has been building between the two companies for the past six years.
The partnership initially began in 2019 with a $1 billion investment from Microsoft. Over time, that investment grew to over $13 billion, giving Microsoft access to OpenAI’s ChatGPT generative AI program. During this period, Microsoft built its network of AI agents (Copilots) that run on top of ChatGPT.
This strategic alliance has helped vault Microsoft to the forefront of the AI race. Shareholders have benefited tremendously, with MSFT stock delivering a total return of over 140% in the last five years.
However, the relationship has faced challenges since 2023. Tensions surfaced with OpenAI’s decision to fire Sam Altman in December 2022, raising questions about the partnership’s future direction.
By January 2025, the companies appeared to be heading for a potential breakup when Microsoft confirmed it would no longer be OpenAI’s sole cloud provider. However, OpenAI made a “new, large commitment” to Microsoft’s AI cloud computing platform, Azure.
Financial Implications
The reset partnership may involve Microsoft reducing its equity stake in OpenAI in exchange for access to new technology developed by OpenAI beyond the previously established 2030 cutoff. This would represent a key concession from OpenAI and provides another reason for long-term investors to remain bullish on MSFT stock.
Microsoft’s stock has demonstrated resilience, rising about 3% during a week when bulls returned to Wall Street. While this is below the returns of other technology stocks like NVIDIA and Apple, Microsoft had less ground to recover. Over the past month, MSFT stock has gained an impressive 18.9%.
Analysts view Microsoft as largely “tariff-proof.” While the company will have some exposure through its Xbox system, its software products remain largely immune to tariff concerns.
At 36x earnings, MSFT stock is trading at a slight premium to its historical averages and near the top of its 52-week range. The stock is currently trading at $453.13, up 0.04% as of the most recent close.
Citi has reiterated its Buy rating for Microsoft, basing the raised price target of $540 on a 44x multiple of the 2026 estimated enterprise value to free cash flow and a 36x price-to-earnings multiple.
The company is also making progress on regulatory fronts. Microsoft’s proposal to adjust the pricing of its Office product with and without the Teams app is reportedly set to be accepted by European Union antitrust regulators, potentially resolving a long-standing case following a complaint from Slack.
Microsoft stock continues to show strength despite recent workforce reductions, with the company’s leading position in generative artificial intelligence and cloud computing driving investor confidence.
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Filed under: News - @ May 16, 2025 12:28 pm